French Prime Minister François Bayrou speaks during a press conference in Paris on August 25, 2025.
Dimitar Dilkoff | AFP | Getty images
The French minority government had to face the prospect of collapsing in a few weeks, after the opposition parties declared that they would not support Prime Minister François Bayrou during a vote of confidence of September 8 linked to its budget reduction plans.
Paris CAC 40 The index was 2% lower than the first agreements on Tuesday. Long -term medium -term French loan costs have booted above, with the country Bond return at 10 years up 2 base points and its Yield at 30 Up 4 base points.
France’s need to reduce its public deficit is a long -standing and very controversial subject. Forcing through a budget of 2025 without parliamentary approval last year led to the collapse of the previous minority government led by Michel Barnier. Political volatility has increased in France since the legislative elections of July 2024 did not give a part or a coalition.
Bayrou is now looking to adopt a budget of 2026 containing around 44 billion euros (51.2 billion dollars) of budgetary tightening, with its proposals, in particular the freezing of social protection and retirement expenses, as well as tax tranches, to 2025. He also proposed to cut two holidays in a very unpopular decision.
The Government maintains that reductions are necessary to tame a deficit which totaled 5.8% of the gross domestic product in 2024 – a figure which, according to him, will continue to increase without action. The European Union states that its members should target a 3% deficit ratio in order to reduce excessive debt.
French economic growth is slow, cooling at 1.2% in 2024, against 1.4% the previous year.
Addressing Press on Monday, Bayou said that France’s dependence on debt had become “chronic”.
“Our country is in danger, because we risk over-induced,” he said, according to a translation of the CNBC.
Bayrou said that the French debt has increased by 2 euros of euros in the past two decades, noting that the country had resisted events, including the 2008 global financial crisis, the COVID-19 pandemic, the Russia-Ukrraine war, inflation and more recently the impact of American prices. He added that the budgetary dispute should be resolved by a debate ordered to the Parliament followed by a vote, rather than “street clashes and insults”.
The comments of the officials of the far -right national rally, the Greens and the socialists suggested that no party officially supports it, risking the collapse of the government.
Pierre Jouvet, secretary general of the Socialist Party, said on Monday on the social media platform X that the group would vote against Bayou and that the government did not have the confidence of the Parliament or the French people. Jouvet added that the party would present its own budgetary proposals in the coming days.
The president of the National Rally, Jordan Bardella, said that his party “would never vote confidence in a government whose choices make the French people suffer”, according to a translation of CNBC.
Risk of collapse “ not evaluated ”
“If the government loses the vote of trust, President Macron can seek to appoint another Prime Minister to form a government, which would then face the immediate dispute to spend a 2026 budget,” said Deutsche Bank analysts in a post on Tuesday.
“Alternatively, Macron could call the elections to Snap. [National Rally] Director in the polls, investors would be vigilant if this could translate this advance into a pure and simple majority this time. “”
After the news on Monday, the spread of Italian bond yields at 10 years old on France fell to 9.8 basic points, its lowest level since 1999, analysts said – sign that investors grant a premium similar to the political risk of the countries. In 2022, the spread was as high as 180 base points.
Reinout de Bock, head of the UBS European rate strategy, CNBC’s “Europe Early Edition” said on Tuesday that Bayrou’s call for a vote of trust was a “surprise” for the markets.
“I think it’s not a price at all, and it’s potentially a big story in the next two weeks,” he said.
“In Europe at the moment, it is really a question of spending more than what we had 10 to 15 years ago … The challenge for France is that they have a budget deficit [of] About 5.8% of GDP. It is the largest budget deficit in the euro zone, and there [are] Open the questions to what extent they will be able to reduce expenses. “”
Bayrou could hang on
Erik Nelson, head of the G10 FX strategy at Wells Fargo, called the prospects of “not excellent” French assets – but said that the result of the Bayrou government was not inevitable.
“I think that part of the question here is that European actions, the euro itself, have been a very popular momentum exchange throughout the year. What we see in the last two days has been a little relaxation of some of the momentum that worked, and there is therefore the risk that we can see further on some of these political risks,” he told CNBC “Squawk Europe”. “”
“I do not know that Bayrou has definitely came out. There is still an uncertainty there. He has a lot that he can offer the opposition.”
He noted that the French Prime Minister had previously threatened – and could now go back – to remove a few holidays.
“It will surely be removed from the table. So it’s not a matter, but they walk here, and as I mentioned earlier, given where market positioning in European assets, there is a lot of risks,” said Nelson.
